THE BANGKO SENTRAL ng Pilipinas (BSP) will extend the alternative reserve compliance for small banks to ensure there will be no adverse impact after the relief measure expires on June 30.

BSP Governor Felipe M. Medalla said the relief measure is no longer necessary since the economy has clearly recovered from the pandemic, but the central bank will make some considerations for small lenders.   

“There may be provisions for small banks to allow (the relief measure) to go on until the loans have matured, para ’di sila mabigla (so they won’t be shocked),” he said during a book launch event on Friday.

“Pag nag mature na ’yung loans, ’yung bagong loans hindi na (Once the loans have matured, the new loans won’t be counted as reserve compliance).”

Mr. Medalla said these considerations will be extended only to thrift banks and rural banks.

During the pandemic, the BSP allowed banks to count their lending to micro, small, and medium enterprises (MSMEs) and pandemic-hit large enterprises as part of their alternative compliance with the reserve requirements.

The relief measure has been extended three times since it was implemented in April 2020, and is now set to expire on June 30.

“It won’t be a complete drop immediately, as long as the original loan, the remaining unpaid principal, will still qualify as reserves until they mature,” Mr. Medalla said.   

Reserve requirements refer to the percentage of bank deposits and deposit substitute liabilities that banks must set aside in deposits with the BSP which they cannot lent out.

Based on central bank data, banks lent P493.5 billion to MSMEs as alternative compliance with reserve requirements as of December 2022. This is 6.6% higher than the P463.1 billion in the same period a year prior.

By banking group, universal and commercial banks extended P390.9 billion in loans to MSMEs, while rural and cooperative banks lent P52.7 billion.

Meanwhile, the BSP will cut the reserve requirements for big banks as the relief measure expires by the end of June, Mr. Medalla reiterated.   

The BSP earlier committed to bringing down the reserve requirement ratio (RRR) of big banks to single digits by 2023.

The RRR for big banks is currently at 12%, one of the highest in the region. Reserve requirements for thrift and rural lenders are at 3% and 2%, respectively.

However, Mr. Medalla said the BSP will not cut the RRR of big banks during a policy meeting.   

“We want to always distinguish between policies and operations. Cutting the reserve requirements are operations because we can always offset the effects of the changes in the reserve requirement by increasing or decreasing our borrowings,” he said.   

A cut in RRR is a move intended to be an operational adjustment to facilitate the BSP’s shift to market-based instruments for managing liquidity in the financial system, particularly the term deposit facility and the BSP securities. 

Meanwhile, the BSP governor said it is crucial to prioritize the protection of depositors over business owners as 80% of funds lent by banks are from depositors.

“In a sense, a banker is almost like a public servant; he’s taking care of the people’s money. That’s why it’s very important that banking laws give regulators great cover when they do their jobs,” Mr. Medalla said in a speech during the launch of Banking Laws of the Philippines – Annotated book on Friday.

During the same event, Chief Justice Alexander G. Gesmundo said banking laws in the Philippines have evolved amid the increasing Filipino participation in the banking practice and the growing demands of globalization.

“The importance of our banking laws cannot be overstated. To begin with, our banking laws instill in us the sense of trust and confidence in our financial institutions, assuring both individuals and businesses that their hard-earned resources are protected and nurtured,” Mr. Gesmundo said.   

He said that banking laws create an environment that enables financial institutions to provide accessible financial services to individuals, businesses, and communities, especially in rural communities and agricultural households.   

The Banking Laws of the Philippines – Annotated is the fourth legal book published by the BSP. — Keisha B. Ta-asan